How a Home’s Surroundings Can Affect Its Value

Posted by TSI Appraisal

When it comes to real estate values, it’s all about location. In some cases, what’s nearby can have as much effect on the value of a home as the qualities of the home itself. For homebuyers and investors, that’s a lesson better learned sooner rather than later. But what kinds of amenities drive up home values? What local drawbacks could send values south, and by how much? In this post, we’ll look at how to recognize an area’s value-adding amenities as well as how to manage risks you may discover lurking next door to your dream home.

Value-Boosting Amenities

Most homebuyers are aware of the ways a location’s perks can boost the value of a home. Top school districts are prized for boosting home values, weathering housing downturns and being advantageous when you’re ready to sell.

High-end retail and specialty stores can boost values, too. A recent RealtyTrac analysis dove down further, finding property appreciation was slightly higher for homes near a Trader Joe’s grocery than a Whole Foods. Even living within a half-mile of a 24-hour Wal-Mart is said to boost a home’s value by as much as three percent.

A 2009 HouseLogic study found neighborhoods with good walkability could add anywhere from $4,000 to $34,000 for area homes, while a 2013 study also by HouseLogic found everything from golf courses to community gardens, professional sports arenas, and prime surfing spots could add significant value to a home.

Amenities like these tend to have a predictable — and positive — effect on property values. Natural surroundings and breathtaking views can also come at a premium price, yet nature also has the potential to be unpredictable in ways a high-end shopping district isn’t.

When a Blessing Becomes a Curse

A lakefront cottage, a riverfront condo, a house in the hills. There’s no question these types of homes command a premium price specifically for their desirable views and locations. Yet for homeowners and investors, it’s important to remember such amenities do carry some risk.

Last month, the Associated Press broke the story of a worsening algae problem on St. Albans Bay in northwest Vermont. As a result, municipal authorities dropped the property valuations of several dozen lakefront homes by $50,000 each.

Occasionally, natural disasters can have even more serious effects on prices as well as the habitability of a home.

The Case of New Orleans After Katrina

It’s been ten years since Hurricanes Katrina and Rita devastated New Orleans homes with unprecedented flooding. An estimated 112,000 occupied homes in low-lying areas in and around the city were severely devastated by the storms, according to a 2006 HUD analysis.

Surprisingly, the housing market didn’t entirely go south following the storms. For homes on higher ground and those in areas that sustained minor damage, valuations actually increased. In the 12 months following the disaster, the average home sales price grew 14% to $225,000. In context, these homes were already in more desirable, elevated parts of the city, and — with a hundred thousand less fortunate residences left unlivable — demand rose above supply.

Making New Orleans a more complicated case, the city’s patchwork assessment system complicated the process of determining just how much the disaster affected overall real estate values. However, the Times–Picayune does point out assessment values in the most damaged areas were lowered by as much as 70 to 80 percent, as both a reflection of the estimated $6 billion in damages sustained and in an attempt to aid recovery and redevelopment efforts. A Realtor Magazine feature from 2006 similarly found that local real estate sales persisted, albeit at depressed prices.

The Increasing Threat of Wildfires in the West

Further west, flooding may not be much of a concern, but wildfires increasingly are. A HousingWire report from 2013 claimed 1.2 million residential properties worth $189 billion scattered across 13 western stateswere at risk. The report came on the heels of a record-setting year of large wildfires. In 2012, 9.2 million acres — an area the size of Maryland — was scorched by 55,505 fires.

Experts first realized the danger posed by backcountry fires to populated areas back in 2003. That’s the year the San Diego-area Cedar Fire burned more than 273,000 acres, spreading as fast as two acres a second, according to the San Diego Union–Tribune. The Cedar Fire spread westward from the Cleveland National Forest into a half-dozen picturesque hillside communities of Northeast San Diego. A staggering 2,232 homes were destroyed, and 15 lives lost. Damages were estimated at $2 billion.

Still, many residents were eager to return to the hills and rebuild. A USA Today report contended such wildfires haven’t slowed a decades-long trend of growing populations in fire-prone areas. In fact, the paper noted in a 2004 report that 40 to 55 percent of homes in Washington, Oregon and California are situated in fire-risk areas. Los Angeles topped HousingWire’s list of fire-prone metro areas, with 60,000 single-family homes — valued at $8.3 billion — in high-risk or very high-risk locations.

Housing sale and price data also indicate wildfires aren’t slowing down the market. Trulia data for El CajonJulianLakeside and Scripps Ranch— four of the San Diego communities affected by the Cedar Fire — appears to show little effect for either median sales price or sales volume following the 2003 wildfire.

Managing the Risks Posed by a Home’s Surroundings

Wherever your next dream home is located, it’s likely the neighborhood will have a mixture of both positives and negatives. Knowing, managing and mitigating the risks posed by your surroundings can help you better enjoy your new home. Here are some tips to get you started.

Crunch the Data

Whether you’re considering homes in a particular neighborhood or wanting to know more about the risks facing your current home, knowledge is power. Data firm CoreLogic produces a number of annual risk reports, from fire hazards to storm surges, charting the level of natural hazard risks for regions and individual properties across the country.

Get a Risk Assessment

While you can learn a lot on your own, some buyers may want to bring in an expert. For a thorough examination of a specific property, it’s possible to get a “Records Search and Risk Assessment” (RSRA) from an environmental consultant. This can be particularly valuable for investors planning on the commercial use of a particular property.

Explore Insurance Options 

For your current home, take a closer look at your homeowner’s insurance policy to see what it covers and what it doesn’t. Most general policies offer modest coverage for home damage caused by inclement weather, but not for severe storm damage. However, you can purchase separate policy coverage for everything from earthquakes to volcanoes. Be aware, though –– if your dream home is near an area that experienced a disaster, even if your home was unaffected, your premium could rise significantly.

Consider Community Involvement

In the case of the Cedar Fire, a number of homes were saved by state building regulations and homeowner association brush-clearing policies. In Colorado, another state with elevated fire risks, USA Today reports that fewer policies are in place to minimize risks. No matter the type of natural hazard risk, steps can be taken to mitigate risks for individual properties and their communities. Getting involved in local discussions could help reduce the risk posed to your home.

In the end, no home purchase comes without some mix of benefits and risks. Understanding the positives and negatives that affect a home’s value will help you make an informed decision about your real estate purchase and know what steps to take to minimize your exposure to any risks that exist.

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